April 23, 2021
Daily Market Commentary
- Canadian equities dipped Thursday in a volatile session, with U.S. President Joe Biden thinking about doubling the capital gains tax rate for wealthy individuals to 39.6%. The S&P/TSX Composite Index fell 0.6% to its lowest since April 5. All 11 sectors declined, with tech and materials leading the drop. Ontario Premier Doug Ford and Quebec Premier Francois Legault called for stricter federal rules at Canada’s air and land borders as the country grapples with a third wave of Covid-19 cases.
- The Bank of Canada sent out a warning to investors this week that inflation still matters. In a surprise move, it accelerated the timetable for a possible interest-rate increase and began paring back its bond purchases on Wednesday. That made Canada the first major economy to signal its intent to reduce emergency levels of monetary stimulus. It’s a turn in policy by Governor Tiff Macklem that shows there’s a limit to how much he’s willing to test the upper boundaries of inflation, with new forecasts showing the central bank expects the biggest persistent overshoot of its 2% target in at least two decades. The question is whether Canada’s situation is unique, or foreshadowing the start of a global exit from stimulus.
- Canada is banning direct flights from India and Pakistan for 30 days to help control the spread of new variants of Covid-19. The restriction, which comes into effect at 11:30 p.m. Ottawa time on Thursday, was made during a virtual news conference with five cabinet ministers. It came after India saw the world’s biggest one-day jump in coronavirus cases ever, with 314,835 new infections. Public health experts worry that a more virulent strain of the virus may be racing through the country of 1.3 billion people. Countries from Singapore to the U.K. have barred flights from India due to the worsening situation.
- Sun Life Financial Inc. announced today that it has agreed to acquire Pinnacle Care International, Inc., a leading U.S. medical intelligence and health-care navigation provider. The transaction is expected to close in mid-2021, subject to satisfaction of customary closing conditions, including receipt of regulatory approval.
- European stocks were set for their first weekly decline in eight weeks as investors weighed risks to the rally from U.S. President Joe Biden’s tax proposal and rising coronavirus infections in Asia, despite the strong start to the earnings season. The Stoxx 600 Europe Index was down 0.4% as of 11:15 a.m. in London, with the real estate and energy sectors dropping the most, while miners advanced. SAP SE was among the biggest fallers, after surging Thursday as the software maker confirmed its first-quarter results and 2021 outlook. Nestle SA gave back some of the previous day’s results-inspired gains. European shares are under pressure after the S&P 500 fell on Thursday following a report that Biden’s administration is considering raising capital gains tax on the wealthy. The Stoxx 600 is heading for its first weekly drop since the end of February, but it’s still up almost 10% this year after reaching a fresh record high last week on hopes for the economic recovery, supported by stimulus and strong corporate reports so far.
- Futures rose Friday as investors digested a proposal for higher taxes to pay for President Joe Biden’s fiscal stimulus. Contracts on both the S&P 500 Index and Nasdaq 100 posted modest gains, signalling the U.S. gauges may be poised to rebound from sharp declines on a Bloomberg News report Biden plans to nearly double the capital gains rate on the wealthy. Intel Corp., the biggest chipmaker, fell 2.7% in premarket trading following a slump in gross profit margin. Treasuries and the dollar dipped. Investors are weighing the implications of higher taxes against the potential spillover benefits of spending on infrastructure. While loose central bank policy is helping support stocks near record highs, these levels look precarious given worsening news about the spread of Covid-19 in parts of the world.
- Asian stocks were set for their worst weekly loss in a month as the region’s virus cases surged and a U.S. tax proposal hurt sentiment. Thai shares were the biggest decliners in Asia on Friday, with the SET Index down 0.9% as the country became the latest to report an unprecedented daily surge in Covid cases. Elsewhere, the Topix index closed 0.4% lower as Japan is set to declare a state of emergency in Tokyo, Osaka and two other prefectures from Sunday. Chinese stocks notched the biggest weekly gain since they peaked at a 13-year high in mid-February. The benchmark CSI 300 index closed 0.9% higher on Friday, taking this week’s rally to 3.4%. Gains were driven by shares of companies that reported big jumps in first-quarter earnings.
- Oil pared an earlier gain as investors assessed a patchwork recovery in energy demand, with signs of a rebound from the pandemic in some countries mixed with setbacks in parts of Asia where the virus is still rampant. West Texas Intermediate eased its earlier gain to trade near $61 a barrel in New York on Friday. So far this month, crude futures have swung between weekly gains and losses torn between divergent demand indicators. Among the latest were robust manufacturing figures in Europe, though India continues to set a record number of daily cases and diesel and gasoline consumption may fall by 20% there this month. Oil remains more than 25% higher in 2021, aided by the roll-out of Covid-19 vaccines and vigilant supply management from the Organization of Petroleum Exporting Countries and its allies. But the bulk of crude’s advance came in the first two months of the year, and prices have struggled since. OPEC+ is set to start easing deep supply curbs from May, and the group is expected to hold a full ministerial meeting next week to assess the global state of play.
- Commodities are closing in on a third straight weekly gain, shrugging off jitters spurred by Covid-19 spikes in some countries, as bullish investors jump into tightening markets for metals and crops. There’s much to mull in the week ahead, from Federal Reserve and OPEC+meetings, to an earnings bonanza that includes at least five energy majors, U.S. crop giant ADM, and many of China’s state-owned commodity titans. The spotlight will be on copper, which could test 10-year highs as bets mount the industrial metal may surge above $10,000 a ton this year. Brazil’s Vale SA, once the world’s top iron ore producer, reports earnings with the steel material trading above a lofty $180 a ton. Whether farm goods from soybeans to wheat and corn can extend rallies on shortage fears will also be worth watching.
- European Central Bank policy makers expect a difficult discussion at the next monetary policy meeting in June over whether to start slowing their emergency bond-buying program, according to officials familiar with internal deliberations. While the Governing Council’s session this week was calm, resulting in no change to policy, talks on June 10 will be much more complicated and could be heated, the officials said, asking not to be identified. Some members are ready to argue that the pandemic emergency purchase program should start being scaled back in the third quarter as the economy is likely to stage a strong recovery from the pandemic in the second half of the year. That would keep the total size of bond-buying within the 1.85 trillion euros ($2.2 trillion) currently envisaged.
- Japan declared a state of emergency in Tokyo, Osaka and two other prefectures, in an attempt to control the latest outbreak and preserve the country’s plans for the Summer Olympics. Several countries announced limits on travelers from India due to a surge in Covid infections and deaths. The U.K. assigned mandatory quarantines for incoming passengers while Canada halted flights and Indonesia banned most travel. Pakistan’s premier warned a lockdown may be needed after tightening restrictions on the economy. China said it expects to approve the BioNTech vaccine for distribution before July and will relax its requirement that inbound travelers have a jab made by a Chinese company, two signals that the country’s eager to bring home citizens stranded abroad and kickstart international travel.
- Panasonic Corp. has agreed to take over U.S. artificial intelligence software developer Blue Yonder for $7.1 billion in one of the biggest acquisitions for the Japanese firm. Panasonic, which already has a 20% stake in Blue Yonder, will buy the rest of the AI firm’s shares from New Mountain Capital and funds managed by Blackstone Group Inc. for $5.6 billion, according to a statement on Friday, confirming an earlier Bloomberg News report. Including repayment of outstanding debt, Panasonic’s total investment will amount to $7.1 billion. The announcement came less than a year after Panasonic acquired the minority stake in Blue Yonder for $800 million, giving the AI firm an enterprise value of $5.5 billion. Panasonic’s latest buyout offer will value the Scottsdale, Arizona-based company at $8.5 billion.
- President Joe Biden wants to end the preferential U.S. tax treatment of investment income that has benefited the nation’s wealthy as he seeks to fund a sweeping new social-spending program. But he will need to overcome a major political hurdle in Congress to do so. The White House plans to propose almost doubling the capital gains tax rate for those earning $1 million or more, to 39.6%, according to people familiar with the proposal. That wouldn’t affect many. Only about 0.32% of American taxpayers reported adjusted gross income of more than $1 million and capital gains or losses on their returns, according to Internal Revenue Service tax return data from 2018. The move would send the top federal rate on the appreciation in assets sold by the rich as high as 43.4% when including a surtax to help pay for Obamacare. And it would upend a century-old precedent of under-taxing investment relative to wages and salaries.
- Vaccine experts will meet Friday to review Johnson & Johnson’s Covid-19 shot, which has been on hold for 10 days after several cases of rare and serious blood clots. The panel of experts, called the Advisory Committee on Immunization Practices, advises the Centers for Disease Control and Prevention. Its 15 voting members will review the evidence and debate whether J&J’s shot should again be used in the U.S., perhaps with new warnings or restrictions, after federal health officials urged pausing use of the shot.
- Bitcoin headed for its worst week in more than a year as a proposed capital-gains tax increase for wealthy Americans intensified the volatility whiplashing the world’s largest cryptocurrency. A fresh bout of selling on Friday drove Bitcoin down as much as 7.9% to $47,525 — below its 100-day moving average — as it continued to take out key technical levels. Wall Street analysts warn of further losses for the notoriously volatile currency that hit a record high of $64,870 on April 14 ahead of Coinbase Global Inc.’s listing, before succumbing to an unexplained weekend swoon. This week’s more than 20% rout marks the worst period for Bitcoin since March 2020. Even digital currencies that have managed to eke out gains over the past few days, like Ether and the satirical Dogecoin, tumbled on Friday as the crypto space turned into a sea of red.
- Technology giants, including Alphabet Inc.’s Google and Amazon.com Inc., spent millions on lobbying in the first quarter of 2021 as they face heightened scrutiny from Democrats and Republicans over alleged anticompetitive practices. Google spent $2.7 million on federal lobbying in the three months ending March 31, according to disclosures filed with Congress. That’s a 49% increase from the same period a year earlier, and comes as the company has been steadily increasing its Washington investments after a two-year decline. Global policy chief Karan Bhatia reorganized the Washington office when he took over in 2018. Google’s lobbying has focused on an array of issues, ranging from patents and copyright to privacy and consumer protection. A spokesperson for the Mountain View, California-based company declined to comment on its lobbying spending.
- The U.K. estimated that delivering on its ambitious targets to slash greenhouse gas emissions by the middle of the century will cost 651 billion pounds ($904 billion), but the benefits of protecting the environment will be far greater. The government’s official impact assessment of a target to cut emissions by 78% by 2035 indicates that action will generate a boost to the economy of about 918 billion pounds. That’s due to the environmental value of the carbon emissions eliminated, cuts in fuel use and the improvement in air quality. Prime Minister Boris Johnson, hosting a crucial round of international talks on global warming later this year, has adopted the most far-reaching program to slash fossil-fuel emissions blamed for damaging the atmosphere. Legislation aimed at shifting the U.K. toward cleaner forms of energy is aimed at generating momentum worldwide in the battle to protect the planet from runaway temperature increases.
- FirstGroup Plc agreed to sell the biggest operator of America’s yellow school buses to EQT Infrastructure as part of a $4.6 billion deal prompted by pressure from the U.K. transport firm’s biggest investor. The stock surged 19% after Stockholm-based investment firm EQT agreed to purchase First Student, which serves 1,000 school districts, and First Transit, an operator of bus services across 300 locations. Iconic long-distance brand Greyhound isn’t included but remains for sale, FirstGroup said Friday. The deal’s value is above previous valuations of about $4 billion. The transaction follows more than two years of pressure for a breakup of FirstGroup, with Coast Capital LP, the Aberdeen, Scotland-based company’s No. 1 shareholder, arguing that its assets would be worth more if auctioned off. While the bulk of proceeds will go toward funding the U.K. business and paying down debt, some 365 million pounds ($506 million) will go to investors.
- Fully electric and plug-in hybrid vehicles accounted for about 15% of passenger-car sales in the first quarter, the European Automobile Manufacturers’ Association said Friday. While that’s slightly less than during the three months through December, when stricter emissions rules led to a late surge in shipments, it’s still almost double than the year-earlier period. Europe overtook China as the biggest market for battery-powered cars in 2020, a lead the region is expected to defend this year amid generous subsidies in Germany, France and Italy and a slew of new offerings from the likes of Volkswagen AG and Stellantis NV. The latest numbers should help allay concerns about the electric shift’s sustainability — raised when automakers pushed EVs into the market late last year to avoid fines for overshooting emissions limits.
- India’s deadly second Covid-19 wave has brought an abrupt halt to its nascent recovery from the pandemic, with the resurgence expected to drag on fuel demand for weeks in a setback for the global oil market. The combined consumption of diesel and gasoline in April is poised to plunge by as much as 20% from a month earlier due to renewed restrictions, including a week-long lockdown in the capital New Delhi, according to officials from top refiners and fuel retailers. While major oil processors were still buying cruderecently, there are signs starting to emerge that refining operations will likely need to be scaled back to adjust for plummeting demand. India has repeatedly shattered records for infections and deaths as the virus sweeps through the nation, stoking fears that the central government may be forced to implement another national lockdown to curb the spread. Preliminary industry sales figures show a significant impact to fuel demand during the first half of April and expectations are that the situation will only get worse.
- Daniel Pinto had one of the best seats in the house for the short-lived Super League. At the start of the week, JPMorgan Chase & Co.’s co-president saw his firm bankrolling the breakaway soccer project, which soon inflamed the passions of fans worldwide. “We were expecting this to be emotional,” Pinto said in a Bloomberg “Front Row” interview on April 20. “We arranged a loan for a client. It’s not our place to decide the optimal way for football to operate in Europe and the U.K.” Had the Super League panned out, JPMorgan stood to earn millions of dollars in fees and interest payments. Now, with most of the founding teams pulling out, Pinto has to manage any fallout that may extend to the bank.
- American Express Co. is on the hunt for new customers, encouraged by lower-than-expected losses on its loans. The firm added 2.1 million new proprietary-card customers in the first three months of the year, contributing to a profit increase that was bigger than analysts estimated. With losses coming in lower than forecasts, AmEx was able to free up $1.05 billion in reserves it had previously set aside. Still, revenue fell more than expected. AmEx and its rivals have been plagued by declines in card spending as the pandemic curtailed travel and health officials urged consumers to stay home for much of last year. As unemployment soared, many lenders boosted reserves against a feared uptick in losses.
- While today’s new home sales report is of interest to all Americans, for mortgage bond investors it’s important to observe where the sales are taking place. Mortgage created in different states exhibit different prepayment speeds. As any U.S. home owner can refinance and prepay their mortgage at par at any time, performance for investors who bought their bonds at a premium can suffer. This is why mortgage investors create specified pools — securities designed to reduce a portfolio’s prepayment uncertainty — based on the geographic make up of the loans within a mortgage bond.
- With so many gauges of the U.S. economy pointing to an accelerating recovery, and even a post-pandemic boom, it seems like a strange time for the government to warn that wages are about to shrink. But that’s what is likely to happen with at least one key measure of paychecks — thanks to another Covid-era quirk in the economic data, which led the White House to warn this week that growth in average hourly earnings is set to “decline dramatically” in the coming months. It may even turn negative on a year-over-year basis. That doesn’t mean U.S. workers will be taking pay cuts. The story behind the numbers is more complicated –- and it’s latest example of how seismic shifts during the pandemic have thrown usually reliable data series out of whack, and made it harder for policy makers and investors to figure out what’s going on in the economy right now.
- The Bank of Russia unexpectedly raised its key rate by 50 basis points and signaled more tightening as ruble volatility amid a deepening standoff with the West contributed to inflation risks. The benchmark rate was raised to 5% on Friday, the Bank of Russia said in a statement. Thirteen economists out of 41 analysts forecast the move, while 28 expected a smaller cut, according to a Bloomberg survey. The ruble extended gains versus the dollar. “The Bank of Russia will consider the necessity of further increases in the key rate at its upcoming meetings,” according to the statement. The bank raised its year-end estimate for inflation to 4.7%-5.2% from 3.7%-4.2% and warned that price growth continues to develop above forecast.
“The stock market is filled with individuals who know the price of everything, but the value of nothing.”―
*All sources from Bloomberg unless otherwise specified